The Essential Guide to Cross-Border Estate Planning for US Expats Living in Spain

by | May 9, 2024 | Estate Planning | 0 comments

Last updated November 19, 2024

• Understanding Spanish Inheritance Laws

• How can I prepare for incapacity under Spanish laws?

• How can I prepare for inheritance distribution of Spanish assets under Spanish laws?

    – Forced Heirship in Spain

    – Can I bypass forced heirship by applying US laws for Spanish assets?

    – Intestate Rules in Spain

    – The Importance of Having a Local Will in Spain

• What about assets in the US?

    – Domicile vs. Habitual Residence

• How do gift and inheritance taxes apply in Spain?

• How is an estate administered in Spain?

• Is there a way to avoid probate in Spain?

• What happens to a child if something happens to parents in Spain?

• The Importance of a Prenup for US Expats in Spain

• Conclusion: The Importance of Cross-Border Estate Planning

Have you fallen in love with Spain? Are you considering making this vibrant country your new home? Whether you’re drawn by its rich culture, stunning landscapes, or warm climate, moving to Spain is a major life change. Moving to Spain is a major change in your life, whether you’re drawn by its rich culture. This transition needs careful planning, for your finances and family security.

In this guide, we explain the details of Spanish inheritance laws and outline effective strategies for cross-border estate planning.

To provide you with accurate information about these Spanish laws, We’ve collaborated with Attorney Rosario Génova Alguacil from MLS Legal in Malaga, Spain, in the Andalusia region. Therefore, the guide includes specific details about Andalusia alongside a broader discussion of Spanish legal principles.

Understanding Spanish Inheritance Laws

Spain’s inheritance laws might seem daunting due to their complexity and regional differences. Just like the United States, where state laws can vary widely, Spain has its own variations across its autonomous regions including Aragon, Catalonia, Galicia, Valencia, and Andalusia. This means that the rules applicable in one region might not be the same in another.

At the national level, the Spanish Civil Code sets the framework for inheritance matters. However, each autonomous region can adapt these rules to fit local needs. For example, Andalusia recently updated its inheritance tax laws, now offering substantial tax breaks that can significantly benefit your heirs.

Unlike EU nations, the US does not participate in the EU Succession Regulation, which aims to streamline cross-border inheritances within the EU. This absence means US expats in Spain may need to take additional steps in their estate planning to ensure their last wishes are respected in Spain.
Given these facts, consulting a local Spanish lawyer is highly recommended.

How can I prepare for incapacity under Spanish laws?

Preparing for incapacity is often overlooked, but it’s a crucial part of estate planning. Illnesses, accidents, or aging can unexpectedly leave you unable to make decisions for yourself. In Spain, as in the US, Powers of Attorney (POA), locally known as Poder Preventivo or Poder Legal, help in these cases.
Poder Preventivo is similar to the General Power of Attorney in the US. It allows a trusted person to manage your assets and take care of you if you become incapacitated. This proactive measure avoids the need for a court-appointed guardian, known in Spain as tutor or curador.
For US expats, this is especially helpful. It avoids complex legal processes, language barriers, and unfamiliar rules if something happens to you. By setting up a Poder Preventivo, you protect your interests, and ensure you are taken care of when you need it most.

How can I prepare for inheritance distribution of Spanish assets under Spanish laws?

Spanish inheritance laws differ significantly from those in the United States, particularly concerning forced heirship, intestate succession, and the absence of legal recognition of trusts.

Forced Heirship in Spain

In Spain, forced heirship mandates that a substantial portion of your estate must go to designated heirs, typically your children or close family members if there are no children. This “la legítima” portion can account for up to two-thirds of the estate, regardless of what your will says. This system contrasts with the freedom Americans have in distributing their assets.

Can I bypass forced heirship by applying US laws for Spanish assets?

The EU Succession Regulation (Regulation (EU) 650/2012) governs international estates based on the deceased’s last habitual residence, a change from prior laws that relied on nationality.

However, the Regulation allows individuals to choose the law of their nationality to govern their estate, allowing US citizens to have their Spanish assets distributed under US law. This can effectively bypass Spain’s forced heirship rules, whether they live in the US or Spain at the time of death. To use this option, a Spanish will should include a clause specifying that US law governs the estate.

When purchasing property in Spain, it’s wise to grant a will there to ensure your estate is managed according to your wishes and to avoid complications from Spain’s forced heirship system.

Intestate Rules in Spain

If there’s no will, Spain’s intestate succession laws determine how assets are distributed. They prioritize the deceased’s closest relatives, dividing the estate among children, spouse, and parents in a specific order. This underscores the importance of having a will to ensure your assets go to those you choose.

The Importance of Having a Local Will in Spain

Managing assets across multiple countries, particularly in Spain where laws greatly differ from those in the US, necessitates having a local will. In Spain, a will is the main instrument for distributing assets after death, especially since the country doesn’t recognize trusts.

One major challenge in international inheritance is determining which country’s laws apply. Since residency can change over time, affecting which laws govern your estate, a well-written will is a must. It can prevent future issues by clearly specifying which country’s laws should apply, regardless of where you live.

Consulting a knowledgeable Spanish lawyer is key to navigating Spain’s legal system for probate and inheritance. They can ensure your will addresses your international assets properly, and complies with Spain’s legal requirements.

What about assets in the US?

The US and Spain have different inheritance laws, especially when there’s no will or trust. In the US, state laws govern inheritance, which can vary significantly. For personal assets like bank accounts, the laws of the person’s domicile, or where they lived permanently, apply. For real estate, the laws of the state where the property is located are relevant.

In contrast, Spanish law follows EU Regulation 650/2012, which focuses on the deceased’s habitual residence, or where they lived regularly, regardless of their citizenship.

Domicile vs. Habitual Residence

Domicile in the US refers to the state where someone has their permanent home and intends to return to. This determines which state’s laws apply to their estate.

Habitual residence, under EU Regulation 650/2012, considers where the deceased lived their regular, settled life. This focuses on daily living rather than an intention to make it a permanent home.

If family members disagree on which law benefits them more, delays can happen. To manage these differences, having a clear will or trust specifying which law applies is crucial. Using a trust for US assets can help avoid probate.

Remember, US assets might still face Spanish inheritance tax, highlighting the need for thorough estate planning to navigate potential tax issues.

How do gift and inheritance taxes apply in Spain?

Spain taxes assets and rights obtained through inheritance or gifts. Tax residents in Spain are taxed on worldwide assets received, while non-residents are taxed only on assets in Spain or rights usable there.

Recipients must pay inheritance and gift taxes before actually receiving the assets. US expats considered tax residents in Spain must also pay taxes on inherited or gifted assets from outside Spain. Generally, inheritance taxes are due within six months of the death, though extensions are sometimes granted. This means beneficiaries can’t delay paying these taxes while waiting to sell inherited property.

Spanish inheritance and gift tax rates can be much higher than those in the US. The central government sets baseline tax rates and exemptions, but autonomous regions can adjust these for their residents. For example, since January 1, 2022, Andalucia offers significant tax benefits. Direct relatives like children, parents, and spouses benefit from a 99% tax reduction and a €1 million exemption. More distant relatives get up to a €10,000 exemption, with the highest tax rate set at 26%, based solely on their relationship to the deceased.

How is an estate administered in Spain?

In Spain, an estate is managed through a process known as “aceptación de herencia.” This involves legal steps to distribute assets as specified in a will or, if no will exists, by Spanish law. A notary plays a key role, particularly in straightforward cases with a valid will. The notary prepares documents such as the “acta de declaración de herederos” to recognize heirs without a will, or the “escritura de aceptación y adjudicación de herencia” to authorize asset distribution. This process typically takes 15 days with a will and 30 days without one.

If the will is disputed or if heirs disagree, courts must intervene. Before distributing assets, heirs must settle any debts and taxes, including inheritance tax. An extension may be requested for tax payments in case of disputes, but late payments can lead to penalties. The estate might also incur notary, court, and attorney fees, depending on its complexity and whether legal help is needed.

To navigate this process, heirs often grant power of attorney to a Spanish lawyer. The lawyer represents them, handles document collection, pays taxes, and manages asset transfers, ensuring a smooth probate process.

Is there a way to avoid probate in Spain?

In the US, trusts, joint ownerships with the right of survivorship,  and Transfer on Death (TOD) can bypass probate. These options allow assets to transfer directly to beneficiaries without court involvement. However, Spain does not offer these alternatives. In Spain, asset transfers usually involve notaries and, if heirs disagree, the courts may also need to get involved.

Joint ownership in Spain differs from the US, especially regarding the right of survivorship. In the US, when a co-owner dies, their share automatically passes to the remaining co-owners, avoiding probate. In Spain, co-owned property is divided into specific shares. When one co-owner dies, their share does not automatically pass to the survivors but is transferred according to the deceased’s will or under Spain’s intestacy laws if there is no will. This rule also applies to married couples. When one spouse dies, their share of assets does not automatically transfer to the surviving spouse.

Given that trusts and the right of survivorship are not available in Spain, having a detailed Spanish will is even more important. Although it may not completely eliminate the need for probate, a clear will can simplify the asset transfer process. It helps minimize court involvement and facilitates the legal transfer to beneficiaries.

What happens to a child if something happens to parents in Spain?

If parents in Spain can no longer care for their minor child, a suitable guardian should be appointed to protect the child’s welfare. This is a scenario no parent wants to imagine. Like in the US, where children may be placed in child protective services or foster care until a guardian is determined, Spain also uses state intervention to protect the child until a long-term solution is found.
Parents can name a guardian in their will, choosing a trusted person to take care of their children if they’re unable to do so themselves. If there is no named guardian, and both parents are incapacitated or deceased, the Spanish courts will step in. Typically, they consider close relatives like grandparents or aunts and uncles for guardianship. If no suitable relatives are available, a state-appointed guardian may be assigned.
When such situations involve more than one country, things can become complex. The Hague Convention on the Civil Aspects of International Child Abduction offers guidance, focusing on the law of the child’s “habitual residence” to determine guardianship. If the child’s habitual residence is outside Spain, the laws of another country, such as the United States, may apply.
To prevent complications and ensure the child’s welfare, it’s important that guardianship plans are legally recognized both in Spain and the parents’ home country. This legal recognition allows the appointed guardian to make decisions for the child across borders, ensuring continuity of care and stability in the child’s life.

The Importance of a Prenup for US Expats in Spain

For US expats living in Spain, especially those in international marriages, a prenuptial agreement is advisable. In Spain, these are known as “capitulaciones matrimoniales.” Given the differences in estate and divorce laws across countries, this document is important for international couples.
Spain now recognizes prenuptial agreements, allowing couples to set clear financial terms and protect their interests from the start. These agreements are valid as long as they do not disadvantage children or unfairly affect one spouse. They clarify how assets and finances will be managed if the marriage ends.
For US expats, prenups help manage legal issues in cross-border marriages, protecting assets acquired before marriage, and ensuring estate plans are followed in Spain. It is important to note that Spain does not recognize trusts. Therefore, assets in a US asset protection trust are not protected from division in a divorce.

It’s wise for US expats to consult legal experts in both Spain and their home country before marriage. This ensures the prenup covers all bases, complies with the laws of both places, and effectively protects both parties’ interests.

Conclusion: The Importance of Cross-Border Estate Planning

Cross-border estate planning is vital for those living abroad. Without proper planning, families can face complicated and lengthy legal issues, leading to unnecessary hardships. It is important to work with skilled international estate planning lawyers. These professionals have the expertise to effectively navigate laws across different jurisdictions.
Jiah Kim & Associates, PC, has extensive experience in helping international families with their estate planning needs. We ensure assets are protected and distributed according to your wishes.
For estate planning in Spain, we highly recommend MLS Legal in Malaga, Andalusia. They are experts in probate and wills, and also offer support in family law, real estate, and tax law for their international clients.
If you’re interested in MLS Legal’s estate planning services in Spain, contact them directly:

Office Phone: +34 951 781 205

Email: info@mlslegal.es

Website: https://www.mlslegal.es/

Working with professionals who understand the laws of both your home country and your country of residence is key to successful estate planning.

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